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Friday, August 27, 2021

Lendlease Global Commercial REIT Review @ 27 August 2021

Basic Profile & Key Statistics

Lendlease Global Commercial REIT (LREIT) invests in Retail and Office properties and owns 2 properties in Singapore and Italy.

Performance Highlight

Performance improved mainly due to the decrease in rental waivers to eligible tenants in Somerset 313 and higher revenue from Sky Complex due to forex.    

Tenant sales in Jan-Mar 2021 have recovered close to the pre-covid level despite traffic declined by more than 20% for the same period last year. However, both tenant sales and traffic declined in Apr-Jun 2021 possible due to the phase 2 heightened alert.

Acquisition of stake in JEM through investment funds is in progress and target to be completed in September. This acquisition is funded through cash, debts and issuance of perpetual securities. Upon completion, LREIT will have 31.8% interest in JEM. 

Related Parties Shareholding

  • REIT sponsor's shareholding is slightly low at 25.1%
  • REIT manager's shareholding is low at 0.78%
  • Directors of REIT manager's shareholding is high at 0.3%

Lease Profile

  • Occupancy is high at 99.8%
  • WALE is long at 4.5 years
  • Highest lease expiry within 5 years is high at 33% which falls beyond FY2025, without breakdown
  • Weighted average land lease expiry is long at 88.98 years

Debt Profile

  • Gearing ratio is slightly low at 33.5%
  • Cost of debt is low at 0.88%
  • All debts are fixed rate debts
  • All debts are unsecured debts
  • WADM is short at 2.2 years
  • Highest debt maturity within 5 years is high at 75%, which falls in FY2024
  • Interest coverage ratio is high at 4.7 times
  • Perpetual securities over debts is high at 26.8%

Diversification Profile

  • Top geographical contribution is high at 66.5% 
  • Top property contribution is high at 66.5% 
  • Top 5 properties contribution is high at 100% 
  • Top tenant contribution is high at 33.5% 
  • Top 10 tenants contribution is high at 53.8%

Key Financial Metrics

  • Property yield is low at 4% 
  • Management fees over distribution is moderate at 12.4% in which unitholders receive S$ 8.06 for every dollar paid 
  • Distribution on capital is slightly low at 3.4%
  • Distribution margin is high at 68.6%

Trends

  • Slight Uptrend - Distribution Margin
  • Flat - DPU, NAV per Unit
  • Downtrend - Interest Coverage Ratio, Property Yield, Distribution on Capital
*DPU at 4Q 2019 is annualized to 6 months to have an apple to apple comparison.
**The interest coverage ratio for 4Q 2019 and 1Q 2020 are estimated to reflect a more closer figure in accordance with the Property Funds Appendix of the Code on Collective Investment Schemes.

Relative Valuation

  • P/NAV - Above +1SD for 1y & 3y
  • Dividend Yield - Below -1SD for 1y; Below average for 3y

Author's Opinion

 Favorable Less Favorable
Diversified SectorLess REIT Manager's Shareholding
High Directors of REIT Manager's ShareholdingShort WADM
High OccupancyConcentrated Debt Maturity
Long WALEHigh Perpetual Securities %
Long Weighted Average Land Lease ExpiryHigh Top Geographical Contribution
Low Cost of DebtHigh Top Property & Top 5 Properties Contributions
100% Fixed Rate DebtHigh Top Tenant & Top 10 Tenants Contributions
100% Unsecured DebtLow Property Yield
High Interest Coverage RatioInterest Coverage Ratio Downtrend
High Distribution MarginProperty Yield Downtrend

Distribution on Capital Downtrend

LREIT performance has declined as compared to the previous quarter, but DPU remains the same. The re-implementation of phase 2 heightened alert from 22 July to 18 August would affect Somerset 313 performance. However, with the increased stake in JEM, 2H performance is expected to be improved.


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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions and loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.

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